3D technology has been out since at least 10 years and it can be concluded that it has failed as a personal viewing choice. It has had decent success in movie theaters, but not in TV, cellphone, etc.

My dad bought a Smart 3D TV recently but no one in my family has cared to watch 3D content at home. There are many problems here: 1) 3D content is not as easily available as regular digital content (Even in USA, 3D content is hard to come by). 2) you need special glasses for everyone who wants to see it. 3) and its (equipment & the content) not as cheap as digital (2D) and hence cannot be mass market. 4) I live in USA, and I can tell you 3D TV's don't sell well here, even though people here replace TV's every 3-4 years.

I do not think 3D or even Virtual Reality (VR) will affect Shemaroo for another 5-10 yrs. Beyond that I expect Shemaroo to be smart enough to adapt and change its strategy accordingly.

If you have a android phone , you can buy vr head mount for as less as 1000 rs and enjoy vr channels on YouTube.

As far as content is concerned , many mobiles are being launched with 2 cameras to capture 3d content. Technology at first is not adpoted by everyone but after 10-15 years there is gradual acceptance and then it is adpoted exponentially till it becomes the norm.

I just pointed this out because just noted that Shemaroo buys movie with a 10 year outlook..

Lets assume 3D movies catch on all of a sudden and every producer is producing 3D movies. And even the customers love watching 3D movies. In that case, if those movies are also available in 3D and meet Shemaroo's rate of return criteria, Shemaroo would buy those movies in 3D and go on with business as usual. In this case it should not affect their business.

3D technology adoption or VR would affect Shemaroo's business, if customer preferences changes where the customers instead of watching movies, switch to watching 3D videos of anything other than movies. In that case it would affect Shemaroo. But if the customer, watches the same movie in 3D or VR instead of Digital format, i do not see it affecting Shemaroo's business.

Amazon and Dharma Productions announce a long-term agreement that will make the catalogue of existing as well as upcoming Bollywood movies from the Karan Johar-led banner available on subscription-based streaming service Prime Video India.

Amazon Prime had earlier entered into a similar agreement with the Bhatt camp i.e. Vishesh films.

Does anybody have an idea as to, these long term deals are for what duration?

Also, are these kind of deals ALWAYS totally exclusive where the rights will be with Amazon only and Dharma productions can't sell it to anybody else for the contracted duration?

For Amazon, these movie rights are like serving welcome drink/dish to customers before serving the main dish (core e-commerce biz from where it derives major part of its revenue) but for Shemaroo this welcome drink/dish itself is the main product. For Amazon cost of these rights therefore maybe a very small part as compared to its overall core business and therefore they may buy a lot of rights like these directly from production houses. Netflix may also buy rights directly from production houses. I wonder how would a scenario like this impact Shemaroo in the long term if these deals (by Amazon and Netflix) are for say 10 years? (This question maybe applicable only if these deals are for 10 years and may not be applicable if somebody like Amazon is not interested in buying the content after 5 years).

One may say that answer to above above question may not matter in the bigger scheme of things or because the opportunity size is huge but still want to invite views on the above or confirm the same, especially from @desaidhwanil and @dd1474.

Disclaimer: I hold share in the company and no change in my position in last one month. Please note that there might some misunderstanding while taking down notes in AGM and hence reader shall aware about same. Also, all investor are advised to do their own independent due diligence as my views might be biased due to my interest in the company.

I have attended AGM of Shemaroo. Find enclosed key discussion points in the AGM from Chairman speech followed with Q&A with management by the shareholders:1) Likely completion of Investment mode of the companyCurrently, the acquisition of the new content is higher than the monetisation of the content as the company is in investment phase. The company is in process to build up content titles. During last 5 years, the title ownership has increased around 2000 to more than 3,400 titles now.

2) Economic Value and Accounting value of Perpetual Rights:The accounting policy of perpetual right in provided in presentation. As per industry norm, transaction cycle for traditional media is 5 years. For films where the company has more than 10 years rights, the company have would write off the cost over two cycles. In management experience, with increase in ad spent, the overall content price has increased by 12% p.a. over long term. Hence, Economic value of content is high. Accounting value of perpetual right would be written off over 10 years. However, the company would continue to sell the rights of broadcaster till the expiry of copyrights and that shall drive the revenue (rather PBT) from year 11, as there is no cost being charged for same. Hence, Economic value and Accounting Value of perpetual rights has some variation.

3) Free Cash Flow and Debt positionThe company expect debt position to increase to highest level in 2018 and Free cash flow to increase significantly post 2018 for the following two reasons:a) Even after 2018, the company would continue to acquire the new content, however, there would be benefit of higher margin of old perpetual content (after two cycle, nil cost of perpetual rights) and also the company has sufficient large library which would reduce the per centage growth. For instance, 100 movies on 2,000 would be 5% of size which shall be only 2.5% when the company has library of 4,000 titles. Further, of old 1,000 rights, many would be having completed 10 years (the company started acquisition of title in 2005). So acquisition cycle (investment mode) would reach maturity by 2018 while monetisation phase would have just begun for the company. b) Higher Broadband penetration (with increased use of lower cost Smart phone) coupled with superior data speed (with all players moving to 4G). All these factors are likely to drive content demand through various platforms from DTH/YouTube/Netflix/Jio. The company would be gaining business at least from the one the platform which shall drive the Free cashflow growth going forward. Industry growth for Digital content for next five years is expected to be around 35% p.a. and for traditional media is expected to be 12-15%. In past the company has grown at higher than industry rate which it expect to continue for next 3-5 years. Even working capital cycle for digital media is lower than traditional media. So the company would be able to get more free cash flow with higher share of digital content in revenue.

4) Inventory valuation of perpetual and Aggregate right:The management said that the company is acquiring aggregate right on on-going basis. On a given day, the value of inventory may be affected to new acquisition or sale of aggregate rights. Hence, the valuation of volatile on a particular day and hence the company does not share that number, as a particular day inventory value would be not give true picture of inventory value.

5) Impact of Jio and NetflixNetlfix launch in near term has increased the competition. It has package starting from Rs 500 p.m. to Rs 850 p.m. While it has yet to penetrate in big way in Indian market, due to current APRU of around Rs 200 per month, over a medium term, it is expected to change Indian Media from advertisement paid to consumer paid Eco system. The current system is more driven by advertisement revenue for the broadcaster which would soon shift to consumption driven. The revenue share for content provider in advertisement system is around 1-5 cents vis around 10 cents under paid Eco system. In the developed market, it has been observed that when the market move from advertisement base to customer base, content owner benefit due to ability to charge higher price. Hence, Shemaroo is optimistic to get benefit of content in long term.

Jio, on other hand, change the price and penetration of board band along with superior speed. Increase in broad band speed offer option to the end-user. One may choose to watch movie on YouTube/Hotstar or on Reliance Jio OTT. The end results would be all these would lead to higher consumption. Most of email and other basic usage of data can work on 3G as well. Once the consumer is used to 4G experience, it would be habituated to higher data usage which would be difficult to downgrade after 3-6 months of fixed price offer.

As per US Media Industry analysis, Top 5 Video and Movie service provider account for almost 2/3 of bandwidth consumption in USA. Same trend is expected to be observing in India.

Further the increase in viewership, while not have material impact of CPM (YouTube advertisement rate), but would definitely drive higher CPM in medium term. So increase, in broadband and user with higher speed, drive higher demand for content which in turn increase Revenue by way of higher CPM, would result in higher margin.

Advertisement follows eyeballs. There would be positive impact on advertisement. In short term, it would drive in more shift from print media advertisement (not much from TV advertisement in first phase), which shall benefit the industry. The CPM growth rate would be increasing in long term.

6) Impact of Digitalisation of TV/BroadcastingCurrent APRU for TV under Cable/DTH is around Rs 250 (USD 4) per month vis USD 35-40 per month. So India is spending is almost 1/10 of US. With various players now coming to market, the prices are unlikely to increase in short term, however, as market stabilise, we shall expect higher growth in APRU as well.

Pricing of Digital OTT offer have wider range with basic offer of 100 per month to Netflix with international content in range of 500-800 per month. Till current APRU is around Rs 250 per month, the Digital media would be restricted to only to elite audience.

7) CompetitionIn Second and subsequent cycle of film, there is no organised players. There are some unorganised and semi organised player. But none would be comparable to Shemaroo.

8) Other pointsa) Net addition in inventory was around Rs 95 Cr in FY16. Gross addition can be calculated from balance sheet but figures were not readily available. b) Rate of interest on borrowing is 11.5-12% pa.c) Subsidiaries are for multiple reasons. For US and UK region expansion. Other is for parallel markets not related to main business, but related to content utilisation like Airline distribution. Couple of subsidiary for film business. There is no activity on film production, no release in last 18 months. There is no film on production as of now. subsidiaries are in investment mode and Shemaroo would continue to support them. The management expect most of subsidiaries to turn around in 1-2 years.d) There is no dead inventory in the titles. The company write off acquired aggregate right which are not sold within 18 months is written off. However, that does not mean that the company cannot generate any revenue from such content. At time a single song or scene has generated more than expected revenue on Digital front for the company as against total acquisition of film price.

Request other members present also to give there view in case I have missed any point or misunderstood any points.

While both Dharma and Vishesh films are big production house, I am not sure whether the agreeement is pay per view or lumpsum payment. I do see Kuch Kuch hota hey appearing once in month on SETMAX and hence wondering whether the time of 5 year broadcast is expired or same being excluded.

In the AGM, management did indirectly touch upon on the issue that main factor which shall drive demand for content is lower price and higher speed boradband. On Broadband, there are various platform from youtube to hotstar, to nexflix to JIO OTT now Amazon Prime.

I do not see any major issue for Shemaroo as there is limited information about tenure of contract. I believe same would be for around 5 years, in which case, it would have no impact on Shemaroo for most of movies from these houses which are recently released. Shemaroo participate from second cycle of movie broadcasting.

Also, it would be interesting see whether amazon prime would show only 50 movies from these production house. It has give better choice to customer in case it consider to long term business. For wider choice, it would be looking for content liberary, hence may be potential client for Shemaroo as well!

couple of points/ concerns; which i would like to understand/ question:

why does Shemaroo books its rights under inventory? shouldn't it actually go under intangible non-current assets; looking at the underlying nature and also the time, over which it amortizes. Any advances for content should go towards loans & advances, either current or non-current, depending on expected closure.

Their inventory turnover ratio has decreased significantly. I know, not the correct ratio, as it is not a manufacturing entity; so i calculated three other ratios (sales/ Inventory), FY16 sales/Inventory of FYE15 i.e. (N-1), and FY16 sales/ Inventory of FYE14 (N-2). Even the N-1 and N-2 are declining; which negates the argument that current inventory also includes some advances/WIP and will generate money a year or two down the line. Table below. Data Source- Capitaliq. What am i missing? views please.

Digital advertising in India has grown at c.35% CAGR; but the key is video ads (not entire digital advertising); which has also picked up nicely, making the higher growth possibility from the segment a reality.

With regards to digital media, the key thing i am battling is not advertisement or industry growth prospects, but consumer habits. How often do we ACTIVELY watch old movies (lets say over 5 years). Key is ACTIVELY, wherein we go, search and play the title on youtube/ netflix/ torrent etc. Consumer habits are different across media. I might have watched Wanted/ dabang etc multiple times on TV (even still do), but never on internet. Also, from below, it appears they are atleast lagging in youtube (especially, if they have amongst the largest library!http://www.livemint.com/Consumer/XZxzSoHeaxQnB7VcLOVQMI/Indias-top-10-YouTube-channels.html

I am not sure, Shemaroo's rights (current that it already owns and also current licensing trend, which will impact Shemaroo in few years) include what and what not? Does it also include rights to publish songs/ music videos or that goes to music licensees? Nobody will turnup to watch a five year old movie in entirety; but songs definitely.

I. If I do not watch movies which are 5 years or older that does not mean all the people on the internet do the same. People may have different habits and we need to look for the numbers to reach to a conclusion. As far as Indias-top-10-YouTube-channels is concerned, Shemaroo has 40 channels on the youtube. You need to add up subscription of all the channels to do a fair comparison.

Also, I will be happy even if Shemaroo comes at 15th place because Shemaroo content is around 50 to 100 times cheaper than content produced by Eros or T-Series.

II. Shemaroo owns a Youtube channel Filmi Gaane which has 1.38 million subscribers. The channel has only video songs from the films it owns, therefore they own rights to songs also. Enjoy one of the collections here.

III. Digital will all about India once data cost comes down. We are at the inflection point of data cost coming down in India. I think you will like the projections about mobile video traffic for 2020 by Cisco below

Find enclosed my opinion on your points:1) Shemaroo has two form of business. When it buys aggregate rights for 5 year broadcasting, it is kind of trading business. It sell same to the movie channel and one time income for 5 years get booked along with cost of acqusition. The second form of business is when it acquire perpetual rights. It would have residual life of anywhere in range of 10-55 years (Given that Shemaroo has acquistion in second round of broadcase rights). While the cost of acqusition is wirtten off in 10 years (for broadcasting), the benefit would contnue to incur over period of time. Please refer to Dhwanil and my old notes to understand more on the point.

2) As I said, nearly 70-80% business in 2010-11 was kind of trading business. Hence, company follow the booking acquisition in invnetory. They have also clear policy to write down any broadcase movie which is not being sold within 18 months, against profit. So inventory cost, in my opinion, is current and probably understated (as inflation of around 10-12% per annum is not caputred).

Peronally, I do not see merit on calculating inventory turnover ratio, as during 2012-16 period, Share of traditional media (prominently broadcast rights) have declined from 92% in FY12 to 83% in FY16, while New media has gone up from 8% to 17% during the same period. The New media business is more driven by internet penetration and broadband speed in the relevant audience along with content available for offer. Further, acquisition of title is also lumpy and hence in past AGM, management did said that as on date figure analysis of inventory would not give much insight. I have covered same point in my notes.

Please, note that the Inventory turnover ratio would be relevant for old media business. We do not have inventory breakup for aggregate right and perpetual rights. In order to make more insight from inventory turnover, we would need following information:Perpetual inventory value as on March 31, YYYYAggregate inventory value as on March 31, YYYYTraditional sales of Perpetual title during FY##Traditional sale of Aggregate title during FY##New media Sale from Perpetual title during FY##New Media sale from Aggregate title during FY##.

We can consider then aggregate inventory turnover ratio as we do for typical trading company. The reason we decreasing ratio of inventory turnover is also due to invenstment phase of the company. As explaied in Dhwanil notes, the company is currently acquiring more rights (specially in perpetual titles) then what is selling. The management claim that benefit of same would acrrue over balance life of the perpetual right, while inventory cost is written off over 10 years. If my understanding is correct, the company is charging significant cost of P&L (which it could have easily avoided by writing off perpetual rights over say 30 years, as against current form of 10 years).

I know I have not explicitly reply to your query, but hope explain why inventory turnover would not make sense in isolation.

3) During FY11 to FY16, CAGR growth of New Media Revenue is 70% p.a. from Rs 6.7 Cr to Rs 63.51 Cr. If we trust the number, then it is almost 2 times the number suggested by the Assochem Media report.

4) While, I am not an expert to comment on same, I take numbers to speak for same. Please note that the past CAGR of 70% p.a. is generated with lesser number of title of old content, limited net speed, and lower penetration in relevant audience (I assume relevant audience being 50+ for Shemaroo old content). I believe it would continue to show higher than digital media growth with all these factors being favourable. As you correctly suggested, the young generation (I assume your age being less than 30:wink:),which are early adapter of broadband, would not like watch Shemaroo content. But eventually, it progress to all age group over period of time. Once it penetrate to agre group of 50+ (which would be last adopter), we would see real spurt on demand for Shemaroo content. Hence, I personally do not see growth for Shemaroo being limited over next 3-5 years.

5) You are correct about 60% user being from outside India. But please note that as per wikipedia link enclosed below, Gujaratis are estimated to comprise around 33% of the Indian diaspora worldwide and can be found in 129 of 190 countries listed as sovereign nations by the United Nations.
en.wikipedia.org

The Punjabi diaspora refers to the descendants of ethnic Punjabis who emigrated out of the Punjab region to the rest of the world. Punjabis are one of the largest ethnic groups in both the Pakistani and Indian diasporas. The Punjabi diaspora numbers around 10 million, mainly concentrated in Britain, North America, Southeast Asia and the Middle East. Punjabis migrated to Australia from other parts of the Punjabi diaspora, as well from the state of Punjab itself. The Majority were Sikh & Hindu Pu...

Now my introduction to Shemaroo was mainly due to Youtube channel of Gujarati Drama. In fact, Gujaratis are generally big fan of Drama as against Gujarati movie which is what more preferred by South Indian, Marathi and Bengalies. I see that being a major push factor for Shemaroo which has largest Gujarati Drama liberary to be encashed.

I do look forward to your counterview on above points.

Gaurav:Appreciate you hard work on the various points and find CISCO forecast being very useful. Infact, management did indicated about same in AGM, but did not have India data to share. I would request if you can check same source for Indian Scenario, if avaialbe.

I would also request you to control your passion and aggression while replying. In fact, when more and more people ask difficult questions, it assist me to sharpen my thought process. For instance, the last points about T Seriew 60% NRI view have given me another perspective about Gujarati drama content of Shemraoo and huge potential it has in India and globe.

Interesting set of questions and observations. I think @Gaurav_Agarwal and @dd1474 have replied to most of the points raised by you.

Regarding the music rights of the content acquired by the company- they indicated in one call that the content produced before 2000/2001 (I do not remember exact year), the music right belongs to the content acquirer and the music right does not rest with the music license. Post 2001, it rests with music licensees. However, my understanding is that this is for Aggregate rights. I am not too sure about whether it works the same way for perpetual rights or for perpetual rights, the music belongs to Shemaroo.

Since Shemaroo has significantly large portion of content acquired produced before 2000/2001- they have very large library of music content that can be monetized.As @Gaurav_Agarwal rightly pointed out, their channel for music i,e Filmi Gaane is attracting significant eyeballs and subscribers.

Interestingly during AGM one of the analyst raised the question about a large part of inventory containing flop films/content and hence having no value. Management was very candid in admitting that the success ratio in film industry on release of film is typically between 10-30%thus clearly indicating that large part of films produced may be theatrically flop. However, as company, what matters to us is not theatrical failure/success but whether we are able to generate our targeted IRR on the content acquired or not. It is very much possible that a theatrical flop, may be well accepted by viewers on broadcast network. He also alluded that in digital world sometimes interesting parts of the film such as comedy scenes/popular-hit songs help them recoup the cost and generate adequate returns even though the response to entire film may be damp squib. Hence due to many creative curation possibilities, they hardly land up in situations where the inventory sitting is dud, at least on digital side.

On the broadcasting side i.e. traditional media side- they write off the content from inventory if they are unable to sell rights for 18 months.

1)The company seems to be front loading investments (acquiring rights ) given there would be a huge swing from traditional mass media to Digital media over long run (in developed world like US the digital spend is more than TV spend) .2)There contribution from new media has been increasing over years which has higher margin which is why logically EBIDTA margin going forward should increase,the way it has been for last couple of years 3)Players like Netflex entry would be positive for Shemaroo. Jio's aggression will help .4)In US media companies are value at PE of 30/35 ,at some stage (may be after 3-5 years )in Shemaroo there will be PE expansion .5)If we simplistically value the company only basis content then the valuation should be twice than what it is today

Thanks guys for your views and counter-views .In my last post , i had expressed skepticism about shemaroo's business model and particularly its ability to profit from increased Internet penetration . As skeptical as i might be , its hard for me to deny those impressive subscriber numbers and huge number of views that shemaroo has notched up on Youtube . Youtube is widely expected to drive major revenue growth for shemaroo in the next few years. In this two-part post series , i will look at shemaroo's youtube business, performing analysis on the viewership trends and monetisation aspect and share my conclusions on the same.

Whats driving the phenomenal growth in shemaroo's youtube views ?

Shemaroo's flagship channel has as on date about 1.22 billion cumulative views . Top 50 videos contribute about 1/3rd of the total views of the channel , this is decent enough sample size to decipher what are people watching.

The videos marked in red are what i would call broadly generalize as bollywood variety of ultra softporn , this is henceforth referred to as "explicit" content . Rest of the videos are songs and Movies .

Here's a breakdown of views by Content category :

Similar trend can be observed in Top 50 for Shemaroo's regional channels except Gujarati and punjabi .Infact they skew even more heavily towards explicit content.

Large part of traffic as high as 40% is being driven by explicit videos .Users seem to be getting lured to the clips via click-baiting .This is frowned upon but highly effective strategy to maximize views .Movies/clips with explicit content or even a hint of titillation draw disproportionate number of views on shemaroo's channels regardless of their star cast , artistic merit or hit/flop status. There is a big censorship arbitrage at play here , as indian censors turn ridiculously stringent on satellite TV ,people turn to net for uncensored explicit movie content. its surprising why shemaroo isnt going whole hog on this and start channels to cater to this niche? .There are lot of B-grade movies that were made particularly in 80s and early 90s in this niche which should be available cheaply and can be exploited .Possible reasons could be that though this can keep the view meter ticking at a fast clip ,these type of views can't be monetised effectively with TrueView ads as users who view these clips/movies are likely to skip ads as they are eager to scroll forward to "good" parts.Plus , they might not be as advertiser friendly .

Songs are significantly more popular than movies . Songs from largely unknown movies like Anwar and Dil pardesi ho gaya are garnering more views than lot of "hit" films combined !.From what i understand , shemaroo can't freely acquire Song video rights for movies released post 2000 , even if they acquire post 2000 movie rights , digital rights exploitation of songs remain with audio company. Though for Anwar released in 2007 , shemaroo is exploiting songs , yet for The dirty picture which had pretty popular songs i couldn't find these songs on shemaroo , they are available on T-series channel . Need to understand , how music rights acquisition works as this will be major driver of views.

B&W classics not popular . Negligible number of views from B&W classics which form a big chunk of shemaroo library .Most watched B&W movie is "Shree 420" on Shemaroo's RK Films channel with a relatively tiny 185,979 views..Though songs from these movies continue to be popular.

Audience for older bollywood movies is limited. Except for few marquee titles ,Unless the acquired titles have explicit content or popular songs , shemaroo might find it difficult to exploit them atleast on the net .

Comments/Feedback as always appreciated . if there are any inaccuracies do point out , will be happy to correct and update .

In the next post , i will try to analyse and understand monetization aspect of shemaroo's youtube business segment.

At 122 million views in June 2016 ,Shemaroo will clock well over billion views going by current trajectory this Financial year. how much are 1 billion youtube views worth ? if we go by below widely cited articles on the net, its a little under 1 million dollars .

As per Management , Shemaroo's Youtube revenue is 1/3rd of New media revenue. For Q1 FY2016 New media revenues were 20 crores, If we go by this estimate , shemaroo earned about 1 million dollars from youtube in this quarter alone for appropximately 350 million views .

Let me try to work my way backwards to arrive at an average CPM which shemaroo earned for 1 million dollar revenue on 350 million views , using the methodology described and agreed upon by the management in the Q1 2015 earnings call.

Only 40-60% can be monetised by Google

Let's take 50% as monetised views = 350 million/2 =175 million views.

Google takes about half of revenues as its share from the partner.

Less about half of monetized views to account for google's share 175 million /2 = 87 million. Now we are left with 1 million dollars for 87 million views 1 million divided by 87 million =0.1149Average CPM =11.4

This is even higher than top end of their estimated range of $2-$8 . what am i missing here ? Feel free to correct my calculations & estimates.

Also - the CPM value differs widely as the demographic of viewer changes. For example - the video is being watched by a male/teenager and located in small indian city, lets say google's algorithm decides it would be best to advertise a ball-point-pen to him. And if the user doesn't skip the video, the applicable CPM rate will be - say $1. However, when the same video is showed to an NRI male viewer who has shown some interest in BMW convertibles, google might very well decide to show him an ad which is related to high end car and the CPM could be even 100 times more.

This is an important strategy to capture viewers with higher paying niche and maybe we shouldn't focus too much on exact CPM rate. For me, the important question to ask:

What is their digital strategy and revenue focus - is it only YT viewership?

What is the current team size and what type of SEO or monetization strategy they are following

Do they have similar strategy on creating original/popular videos which might go viral? Example would be partnership with channels like viralfever etc or a similar type of buzzfeed.